Cotton export policy requires a new spin

G. Chandrashekhar Mumbai | Updated on March 12, 2018 Published on January 31, 2011

The cotton and cotton yarn export allocation policy is to be reviewed by the Commerce Ministry in the second week of February this year .   -  Business Line

The cotton export quota allocation policy followed by the Director General of Foreign Trade (DGFT) may be consistent with the country's liberalised trade policy of recent years, but it is doing nothing to advance the brand building exercise that was started by traditional exporters some time ago.

If anything, the liberalised policy of seeking applications from all and sundry, and indiscriminate issue of quotas to many with no track record is likely to prove counterproductive over time.

Steep discount

Two issues are worth noting. One is the steep discount at which India cotton has been traded or, some say, thrown away. According to trade representatives, most of the export contracts are at least 20 per cent (equivalent to about 30 cents a pound) lower than international price. While overseas buyers may only be too happy to receive goods at discounted prices, such sales are not going to enhance the image of Indian cotton.

Buyers are obviously not going to complain about the quality of cotton shipments from India this season simply because of the cheap price at which goods have been sold.

“If we wish to pitch our cotton in the premium segment, then it should be sold at a price commensurate with its quality,” commented a traditional exporter. It is in this context that the DGFT could be faulted for ignoring global cotton market conditions while formulating its policy that some traders sarcastically described as ‘grand clearance sale'.

What prevented the Government and indeed the Ministry of Commerce from ensuring higher unit value realisation at a time of record global prices remains a mystery. There are ways and means by which the country can realise higher unit value for goods in line with global market conditions.

Why not MEP?

Imposition of Minimum Export Price (MEP) is one such. Basmati rice export is a good example to follow. While rice (non-basmati) exports are banned, basmati (an aromatic premium rice variety) is exportable without quantitative limits subject to a specified MEP. The system is said to be working well.

To those genuinely keen to promote Indian cotton, valuable lessons are available in this year's cotton export policy and performance. The very idea of releasing a limited ceiling and quota allocation deserves to be reviewed. Quantitative restriction and quota allocation have done more harm than good to Indian cotton, going by this season's experience.

Without tinkering with the export policy in terms of imposing quantitative controls, it may be possible to allow exports under open general license and, yet, monitor and moderate exports through a system tariffication, depending on exigencies of the situation.

Work in coordination

The Central Government and, in particular, the Commerce and Finance Ministries should work in close coordination to ensure that the tariff mechanism is used effectively to regulate export shipments. Changes in tariff in accordance with world market prices will keep exporters alert and alive to evolving market conditions. Windfall gains would be eliminated.

Tariff changes (especially a hike in Customs duty) hanging like Damocles Sword is the answer to invoice manipulation.

The Government has already lost revenue following unimaginative procedural changes and poor implementation of cotton export quotas. One hopes these are not repeated.

Published on January 31, 2011

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